BUS 475 General Business Topics Answer Guide | June 2017

Ricalta Inc. earns a total of $500,000 before interest and taxes

Ricalta Inc. earns a total of $500,000 before interest and taxes. Its total debt is $1,110,000 (costing 5%). It has 150,000 shares of common stock at $5 per share. The firm is considering reducing its debt by $450,000 by issuing an additional 90,000 shares of common stock. The firm is in the 35 percent tax bracket. Its earnings before interest and taxes will remain the same as the new capital structure will not impact the firm’s operations. Which of the following will be a consequence of the change in Ricalta’s capital structure?

The firm’s net income will decrease by $14,625.

Explanation: Removing debt will reduce net income, all other factor being equal. Here’s the math to solve this Ricalta problem:

Prior Interest Expense: 1,110,000 * 0.05 = 55,500

Current Interest Expense: (1,110,000 – 450,000) * 0.05 = 33,000

Net Income Prior: 303,550

Net Income After: 288, 925

Claudia is a team lead in an organization

Claudia is a team lead in an organization. One day at work, a team member, Marc, informs Claudia that he wants to speak to her about the problems that he faces at work. Marc tells her that he is being treated unfairly at work and that his colleagues often ridicule him because of his ethnicity. He goes on to say that his disturbed state of mind has caused a dip in the productivity and quality of his work. Claudia does not interrupt him when he is speaking and encourages him to talk openly. She also lets him know that she understands his situation and that his feelings are valid. In this scenario, Claudia is primarily engaged in

empathic listening

Explanation: Empathetic listening occurs when the listener encourages the person to speak openly and acknowledges their concerns.

Irvin’s Ice Creams, a popular chain of ice cream parlors present only in the United States

Irvin’s Ice Creams, a popular chain of ice cream parlors present only in the United States, is looking for opportunities to grow its business. If the firm conducts a SWOT analysis of its performance, which of the following would be categorized as a threat?

The entry of international ice cream brands in the U.S. market

Explanation: Threats in a SWOT analysis are are potentially negative external forces, such as competitors from international markets.

Rikan Inc.’s credit sales for the year 2016 are $5,000,000

Rikan Inc.’s credit sales for the year 2016 are $5,000,000, and its gross profit is $1,500,000. The company’s average inventories are $595,000. Its average accounts receivable is $750,000 and average accounts payable is $640,000. From this information, calculate the company’s cash cycle.

50.1 Days

Explanation:

Days Inventory Outstanding (DIO) = 62.1

Days Sales Outstanding (DSO) = 54.8

Days Payable Outstanding (DPO) = 66.7

Cash Conversion Cycle (Days) = 50.1

Truno Corp.plans to purchase new project management software. There are three available choices in the market: Telpro, Morse, and Verla.

Systems manager: I have compared the three available choices. All three choices are similar in quality, features, and usability. However, Morse is the most commonly used software, and it also has the lowest purchase price. Therefore, the best choice of project management software for us would be Morse. Which of the following statements, if true, would strengthen the systems manager’s argument?

Morse is easily customized to fit individual customer needs.

Explanation: The cheapest option is not always the best for project management software, but a highly customizable system would help support the decision for Morse in this scenario.

The intensive 45-day training program for new employees at Zed Inc.

The intensive 45-day training program for new employees at Zed Inc. requires trainees to take several tests that trainers at Zed Inc. have to grade. Recently, there has been a 30% increase in hiring. With the present number of trainers, it is not possible to finish grading all the tests in time

HR manager: The training team should transfer all the tests for the trainees to software that will grade them automatically. Our hiring budget will not allow the hiring of additional people to manage the increased number of trainees. Using auto grading software will not require any funds from our hiring budget. Which of the following is assumed by the HR manager?

Zed Inc. will not need to hire additional people to operate the auto-grading software.

In 2005, Susana purchased a 7-year zero coupon bond for $967.23. The face value of the bond was $1,200. Calculate the capital gain on this bond in 2006.

$33.25

Explanation: (1200 – 967.23) / 7

Marketing head of Tosel Inc.: Our company has been using an advanced CRM platform, Inito

Marketing head of Tosel Inc.: Our company has been using an advanced CRM platform, Inito, which is popular among businesses for its sophisticated functionality. Inito allows us to store customers’ psychographic data as well as their recent shopping behavior. However, since we began using Inito, we have not been able to generate a significant greater number of leads. Clearly then, using CRM software does not help in generating any business. Which of the following statements, if true, would weaken the argument above?

Tosel has not invested the resources required to maintain its database of customers’ psychographic data and shopping behavior.

Harry is receiving a loan of $3,000 from his friend to pay off some outstanding bills

Harry is receiving a loan of $3,000 from his friend to pay off some outstanding bills. The loan is structured in such a manner that the interest rate is 6% for the first year, after which the interest rate increases by 2% per year until the loan is paid. Calculate the amount that Harry will have to pay his friend if he waits for a period of four years to pay of the loan.

4,231.20

Explanation: Here’s a breakdown for 4 years of interest.

Balance

Rate

Payment

3000

6%

3180

3180

8.00%

3434.4

3434.4

10.00%

3777.84

3777.84

12.00%

4231.2

Five years ago, Rigatani Corp. introduced its new energy drink, Energize

Five years ago, Rigatani Corp. introduced its new energy drink, Energize. According to recent market surveys, the product is in its decline stage. At the same time Energize was introduced, Panne Inc. introduced White Unicorn, another new energy drink. Therefore, White Unicorn must also be in its decline stage now. Which of the following is an assumption on which the conclusion is based?

Unicorn did not spend more time in the maturity stage than Energize did

Zuckain Corp. has issued a 10-year coupon bond. The bond is issued at an annual coupon rate of 14%. The face value of the bond is $1,500, and the bond is currently trading at $1,232.56. Calculate the bond’s yield to maturity.